Archive for the ‘Tax Fraud’ Category

The Tax King Goes to Prison

Wednesday, September 14th, 2016

The Tax King—at least, the St. Louis version thereof—is heading to ClubFed. Eyob Tilahun owned the Tax King tax preparation firm in the St. Louis area. He wasn’t charging low prices; his typical fee was $400 to $650. And he asked for tips of $100 to $1000. Sounds like a good business model to me.

Of course, I didn’t mention the other things he did. Let’s head back to the DOJ press release from May:

In the pleading guilty today, Tilahun admitted that Tax King’s return preparers were trained and instructed to increase their customers’ refunds by falsifying certain information on their tax returns. The false information that was placed on the returns included: (1) false Business Income and Schedules Cs which caused the clients to qualify for larger Earned Income Credits (“EICs”); (2) false wages, which again caused the clients to qualify for larger EICs; (3) false education expenses which enabled the clients to qualify for American opportunity education credits; and (4) false information regarding fuel taxes which qualified the clients for federal fuel tax credits.

I think I’ve talked about how all these credits can be used for fraud in the past. Congress might want to consider not having so many tax credits…but I’m likely talking to the converted.

Well, sentencing came up last Friday. Mr. Tilahun will have 38 months at ClubFed to think things over. He’ll also have to make restitution of something over $2 million. Maybe that’s why I haven’t embraced this business model.

For individuals shopping tax professionals, remember that if it sounds too good to be true it probably is. If you make a lot of money, you’re likely going to pay a lot in tax. There is no tax fairy to make your taxes go away.

Once Bitten, Twice Not Shy

Monday, September 5th, 2016

Back in 2013, Cedric K. Oliphant was convicted of falsifying a tax return.

Specifically, during his plea hearing today [August 30, 2013], Oliphant admitted he knowingly and willfully included materially false deductions for gifts to charity and for unreimbursed business expenses a client’s 2007 tax return. This tax return alone caused a loss to the U.S. Treasury in the approximate amount of $11,261.

Oliphant also admitted he had knowingly and willfully prepared and filed dozens more false federal income tax returns for other clients for tax years 2006 through 2008 that generated excessive refunds and cause aggregate losses to the IRS of totaling approximately $325,000.

Mr. Oliphant was released on bond awaiting sentencing. A condition of his release was that he stop preparing tax returns. I’m sure you’re ahead of me.

He was sentenced back in 2014:

In handing down the sentence today, Judge Harmon noted that Oliphant had prepared hundreds more tax returns with deductions similar to those described in the plea agreement indicating that actual losses to the National Treasury could be as much as $1 million.

Oliphant had been previously released on bond. However, that bond was revoked when it was determined he violated the conditions of his release by continuing to prepare tax returns after conviction. At that bond hearing on April 10, 2014, evidence demonstrated Oliphant had prepared and electronically filed at least 463 client tax returns during the 2014 filing season.

Fast forward to August 26, 2016 (just a week or so ago); Mr. Oliphant was released from prison. Mr. Oliphant’s troubles apparently weren’t behind him. Remember the accusation of preparing returns when he shouldn’t have been? The US Department of Justice alleges it was quite a bit more than that.

Oliphant had been previously charged and later convicted of preparing dozens of false 2006-08 client tax returns as part of his business – Oliphant Tax Services. He had been permitted to remain on bond during that time under a condition that he have no involvement in the preparation of tax returns other than his own. However, according to the new indictment, Oliphant continued to claim the same false deductions for unsuspecting clients while awaiting sentencing on the previous case.

As part of the scheme, the indictment alleges he changed the name of business to “Tax Services” to allegedly make it appear he had stopped preparing client tax returns and that someone else was the owner of his tax preparation business. Oliphant allegedly attributed the fees to the nominal owner of his tax office but manipulated those tax returns to make it appear the tax office had produced almost no taxable income.

But that’s not all. Mr. Oliphant allegedly used nominees to conceal what was going on:

The indictment also alleges Oliphant established a series of bank accounts in the names of others – including minors with custodians other than himself – so the fees could first be deposited to accounts in the names of the nominal owner of his tax office and others. He then allegedly transferred those fees through these intermediate accounts to accounts in his own name. This scheme enabled Oliphant to conceal his personal use of the fees generated by the business during the course of the prosecution on the first case, according to the charges.

The business allegedly generated $2 million in fees and a total loss to the IRS of another $400,000 or more as charged in the new indictment. As part of the his plea agreement in the earlier case, the losses from those false tax returns exceeded $325,000.

If you sign an agreement not to do something—especially if that agreement is with the government—it’s a very good idea to not do that something. And if you do that something, it’s a good idea to be on the up and up; you know you’re being watched. If these allegations are true, Mr. Oliphant might be heading right back to ClubFed.

Identity Thief Gets 17 1/2 Years

Sunday, June 12th, 2016

Frantz Pierre, formerly of Parkland, Florida but soon to be residing at ClubFed, was sentenced last week to 210 months at ClubFed and must make restitution of $906,556. What did he do? I’ll let the Department of Justice press release tell the story:

According documents filed in court, from July 2010 through May 2011, PIERRE was the leader and organizer of a scheme to steal from the federal government by filling hundreds of fraudulent income tax returns. PIERRE and his co-conspirators used stolen social security numbers and other personal identifiers as well as fabricated employment and income information to complete hundreds of income tax returns and to claim millions of dollars in fraudulent tax refunds.

According to documents filed in court, as part of the scheme, PIERRE and his co-conspirators would establish fictitious tax preparation businesses and then open multiple bank accounts in the names of the fictitious businesses. In addition, PIERRE directed the IRS to deposit the fraudulently obtained income tax refunds into the bank accounts set up by the defendant and his co-conspirators. In total, PIERRE and his co-conspirators submitted approximately 776 fraudulent tax returns to the IRS, resulting in $5,249,935 in tax refunds to be deposited into the fictitious companies’ bank accounts.

There’s not much to add here. I’m glad to see crooks like this get very lengthy terms. Identity theft is miserable for the victims, and many victims did nothing wrong and are victimized. Now, if the IRS could start fully assisting victims instead of putting them through the wringer….

If You Want to Go to ClubFed…

Sunday, June 5th, 2016

…The simplest, fastest, and easiest method (via the tax world) is to withhold employment taxes and not remit them to the IRS. This is always investigated. But at least once a month I see yet another example.

Take the case of Bernard Haag of Piedmont, South Dakota. Mr. Haag was the president and sole stockholder of a corporation, and the sole member of a limited liability company. Through these entities he owned a day care facility. So far, so good. He withheld taxes from his employees’ wages. And as the Department of Justice press release notes, “…[He] willfully failed to pay over those taxes to the United States for all of 2005 through 2011, and three quarters of 2012. Haag also willfully failed to pay the employer’s portion of taxes on wages paid to employees of Big Dog and Concept Development for all of 2005 to 2012. Rather than paying over the taxes, Haag used a portion of the withholdings for his own personal use.”

Adding to his misery he filed for bankruptcy, and also was convicted of concealment of bankruptcy assets. In total, he got 18 months at ClubFed and must make restitution of over $300,000. A helpful hint that I’ve repeated for over ten years: Don’t do this! You will get caught.

Individual F: Has Kermit Washington Fouled Out?

Wednesday, May 25th, 2016

Yesterday I wrote about the guilty plea of former San Diego Charger Ron Mix; today, the other shoe dropped. “Individual F,” as former NBA basketball player Kermit Washington was called in the Mix indictment, was arrested on charges of corrupt interference with the internal revenue laws, wire fraud, obstruction of justice, and aggravated identity theft.

The Department of Justice press release details the charges:

It is alleged that Washington referred professional athletes to Ron Mix, a former professional football player and an attorney licensed in the state of California, whose practice focused on the filing of workers’ compensation claims on behalf of former professional athletes. In exchange for the referrals, Mix made payments to PCA and claimed those amounts as charitable deductions on his personal tax returns. Upon receipt of these payments, Washington diverted the funds for his own personal benefit. Washington filed false individual income tax returns for 2010 through 2013, failing to report the funds he diverted from PCA and false Forms 990-EZ on behalf of PCA. Washington also falsified PCA’s corporate minutes to obstruct the investigation and used the identity of another individual to perpetrate this scheme.

It is further alleged that Washington conspired with others to defraud eBay and PayPal, customers and donors of PCA by allowing the co-conspirators to use PCA’s name, tax-exempt status and IRS Employee Identification Number (EIN) with eBay and PayPal so the co-conspirators could avoid substantial listing and registration fees incurred in operating online, for-profit businesses. Moreover, customers who made purchases falsely believed that 100 percent of the proceeds from the co-conspirators’ online eBay sales benefited PCA. In exchange for allowing the co-conspirators to use PCA’s tax-exempt status, Washington received payments from the co-conspirators.

According to the indictment, Mr. Washington diverted about $500,000 of donations to a charity he founded and used them for his personal benefit. That money also allegedly didn’t make it onto his personal tax return. There are also allegations of fraud against eBay and PayPal, and identity theft. This alleged identity theft was not for purposes of obtaining a tax refund; rather, he used the name of someone without their knowledge as the “Secretary” of his charity on the Form 990-EZ filed for his charity.

Of course, these are just allegations but one thing is certain: Mr. Washington is looking at a lengthy term at ClubFed if he’s found guilty of the charges.

Neither Rain Nor Sleet Nor Snow…But What About Theft?

Sunday, May 1st, 2016

Rain–which we had here in Las Vegas this past weekend–didn’t stop the postman from delivering bills I have to pay. Sleet and snow don’t stop the US mail, either. However, theft of the mail will stop it. One postal carrier will likely be heading to ClubFed because he stole mail used in an identity theft ring.

Earl Champagne delivered mail in Pennsaucken, New Jersey. From the Department of Justice press release:

Champagne admitted that from March 2014 to July 2014 he stole U.S. Treasury Checks from the mail and gave them to others. He said he was approached by two individuals who asked him to retrieve checks from the mail with the promise that he would be paid. The individuals told Champagne that the checks were IRS checks and that they would mostly be addressed to individuals with “Spanish” names. The individuals expected to either pick up the checks from Champagne or for him to notify them that the checks were in the mailbox so that they could retrieve the checks themselves. For this service, Champagne was paid $50 per check for every check stolen from the mail. Champagne admitted that he stole 72 U.S. checks totaling $442,776.

Theft of mail is a felony–and can be subject to a lengthy term at ClubFed (up to 15 years and a $250,000 fine per offense). This wasn’t a brilliant idea as sooner or later someone would notice the lack of the refund check, and then the IRS would be notified and it would be fairly easy to figure out the issue. For Mr. Champagne, the Bozo aspect of his crime didn’t occur to him…but it likely does now (a bit too late for him).

Bozo Tax Tip #1: Publicize Your Tax Crimes on Social Media!

Friday, April 8th, 2016

Social media is really, really big these days. You can follow me on Twitter. I may even update my Facebook page one of these days. Of course, I’m not a tax criminal, and my posts hopefully add knowledge for others.

Of course, where you and I won’t go the Bozo contingent is quite happy to do so. Take, for instance, Rashia Wilson. Ms. Wilson posted a wonderful picture on her Facebook page:

Rashia Wilson (Image Credit: Tampa Police Department)

In the same post, she bragged:

“I’m Rashia, the queen of IRS tax fraud,” Wilson said May 22 on her Facebook page, according to investigators. “I’m a millionaire for the record. So if you think that indicting me will be easy, it won’t. I promise you. I won’t do no time, dumb b——.”

She’s doing 21 years at ClubFed. Oops…

A helpful hint to the Bozo tax community: Law enforcement does read social media. Indeed, the IRS will do a search of you on the Internet prior to a field examination (audit). So if you decide to go on the dark side of life, don’t brag about it online. A better course would be not to go on that dark side to begin with, but that rarely occurs to the Bozo community.

That’s a wrap on our Top Ten Bozo Tax Tips for the 2016 Tax Season. I’ll be back in about a week with normal content.

Maryland Suspends Processing Tax Returns from 23 Liberty Tax Service Locations

Thursday, February 4th, 2016

Maryland Comptroller Peter Franchot announced on Tuesday that he has suspended processing from 16 more Liberty Tax Service locations (bringing the total suspended to 23). The decision was made based on suspicious characteristics found on the returns:

  • Business income reported when taxpayers did not own a business.
  • Refund amounts requested much higher than previous year tax returns.
  • Inflated and/or undocumented business expenses.
  • Dependents claimed when taxpayers did not provide required 50 percent support or care.
  • Inflated wages and withholding information.

These reasons sound like tax fraud 101–what’s been done by unscrupulous preparers year after year. This year, though, at least one state is making an effort to nip these problems before they grow too large.

It should be noted that these stores were owned by franchisees. Jim Wheaton, General Counsel, Chief Compliance Officer, and Vice President of Legal and Government Affairs at Liberty, told Accounting Today that they have a “…robust compliance program, and we expect our franchisees to make sure that their offices comply with all federal and state tax requirements.”

For consumers, the advice that Maryland noted in their press release is accurate: “Taxpayers should carefully review their returns for these issues and should be suspicious if a preparer: deducts fees from the taxpayer’s refund to be deposited into the tax preparer’s account; does not sign the tax return; or fails to include the Preparer Taxpayer Identification number “PTIN” on the return.” I’ll add, if you don’t own a business and see business income on your return, there’s a problem. If you’re not attending college (or have a dependent attending college) and see education tax credits, there’s a problem. If it looks too good to be true, it probably is.

The Liberty to Commit Tax Fraud

Sunday, January 31st, 2016

There are thousands of tax professionals. These range from the huge firms such as H&R Block to mom and pop outfits. The professionals range from Enrolled Agents, CPAs, and tax attorneys to those who have just put up a sign saying that they’re “professionals.”

Liberty Tax Service is one of the huge chains. They have employees dressed up like the Statue of Liberty outside of their locations. According to the IRS and Department of Justice, a Liberty Tax franchisee in metro Detroit took quite a few liberties with tax law.

Craig Comer operates five Liberty Tax Service locations near Detroit. If the complaint lodged by the US Department of Justice is correct, the five franchise locations did the usual illegal things to increase refunds:

According to the complaint, the defendants prepare income tax returns for customers that fraudulently overstate refunds and claim refundable credits by, among other things, claiming false or inflated Schedule C income and expenses, bogus dependents, false filing statuses, improper education credits and false itemized deductions. Based on audit adjustments the IRS has made to tax returns prepared and filed by the defendants for 2008 to 2013, the defendants’ conduct has cost the U.S. Treasury approximately $4.5 million for those years alone, according to the suit.

There are also allegations of forging customer signatures, changing returns that customers have already signed, committed fraud with the Earned Income Credit, and violated IRS PTIN (Practitioner Tax Identification Number) requirements. All tax professionals who prepare tax returns for money are required to put their PTIN on every tax return they file. The government is alleging that this wasn’t done by this franchisee.

This story does show two things. First, requiring every tax professional to obtain a license won’t stop tax fraud. The alleged fraud here was started by an individual with a PTIN, someone who assuredly could obtain the former RTRP designation or the current AFSP “seal of approval.” Second, the Department of Justice news release notes, “In the past decade, the Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers.” This is absolutely true, and the DOJ should be commended for their work. It also shows that licensing every tax professional isn’t needed to get rid of unscrupulous ones.

Fraudster Tries Alchemy; Will Have 20 Years to Think That Over

Sunday, January 10th, 2016

I have a degree in chemical engineering. As an undergraduate, I did research into the catalyzed production of methane (CH4) from graphite (Carbon, C) and Hydrogen (H2) using potassium hydroxide (KOH) as a catalyst. That was real chemistry.

Alchemy is a bit different. An alchemist tries to turn lead into gold. With the exception of radioactive elements, chemical elements don’t change. If you have lead, it stays lead and doesn’t change into gold.

Joseph Furando of Montvale, New Jersey thought he had the perfect way of performing alchemy. He took biodiesel fuel that wasn’t eligible for two tax credits and magically turned it into biodiesel fuel that was eligible for the tax credits:

From 2007 through 2012, Indiana-based E biofuels owned a biodiesel manufacturing plant in Middletown, Indiana. Biodiesel is a fuel that can be used in diesel engines and that is made from renewable resources, including soybean oil and waste grease from restaurants. Under the Energy Independence and Security Act, properly manufactured biodiesel was eligible for a dollar per gallon tax credit as well as another valuable credit, called a Renewable Identification Number (RIN) that petroleum refiners and importers could use to demonstrate compliance with federal renewable fuel obligations. These incentives can be claimed once and only once for any given volume of biodiesel.

Furando admitted that sometime in late 2009, he and his companies, New Jersey-based defendants Caravan Trading Company and CIMA Green, began supplying E biofuels with biodiesel that was actually made by other companies and had already been used to claim tax credits and RINs. Because these incentives had already been claimed, Furando could purchase the biodiesel at much lower prices, sometimes for more than two dollars per gallon less than biodiesel that was still eligible for the credits. The conspiracy functioned as follows: Furando supplied the product to E biofuels and his co-conspirators would claim that E-biofuels made the fuel and then they would illegally re-certify the fuel and sell it at the much higher market price for incentivized biodiesel, known as B100 with RINs. Within the circle of those he trusted, Furando referred to this fraud scheme as “Alchemy.”

In two years, that was a profit—albeit an illegal profit—of $145.5 million. It appears that $56 million of this represented fraud, as that is how much restitution Mr. Furando must make. He was also sentenced to 20 years at ClubFed, and must forfeit his Ferrari and other cars, his “million-dollar home,” and other possessions.

I’ll point out (again) that tax credits attract fraudsters like moths to flames. One day, perhaps, Congress will decide that these programs should go in the dustbin of history. Well, there’s always hoping.